Rental Property Investor · Delray Beach, FL · Member since 2014 · 224 posts · 169 votes
I had some applicants apply to one of my listings who seem like nice people but have terrible credit (480). I denied their application for not meeting the minimum qualifications. They are now saying that their parents, who have an 800 credit score and good income, are willing to co-sign on the lease. I don't have any experience with applicants using co-signers on a lease. Is it worth pursuing or should I stick with my gut to deny the application?
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
7y
Jason:
Good that you had your qualifications defined. What was the reason that their credit score was so bad?
I've seen situations where tenants had a medical problem and lost their job. That one-two punch destroyed their credit. If they are beyond those problems, they may be great tenants.
However, if their credit is bad because they are stupid with money management, they will always be nightmare tenants. Yes, you will probably, eventually get paid -- by their parents. However, you will spend many hours each month chasing late rent. That is not something you want to do.
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
7y
Jason:
Good that you had your qualifications defined. What was the reason that their credit score was so bad?
I've seen situations where tenants had a medical problem and lost their job. That one-two punch destroyed their credit. If they are beyond those problems, they may be great tenants.
However, if their credit is bad because they are stupid with money management, they will always be nightmare tenants. Yes, you will probably, eventually get paid -- by their parents. However, you will spend many hours each month chasing late rent. That is not something you want to do.
Good that you had your qualifications defined. What was the reason that their credit score was so bad?
I've seen situations where tenants had a medical problem and lost their job. That one-two punch destroyed their credit. If they are beyond those problems, they may be great tenants.
However, if their credit is bad because they are stupid with money management, they will always be nightmare tenants. Yes, you will probably, eventually get paid -- by their parents. However, you will spend many hours each month chasing late rent. That is not something you want to do.
Their explanation of bad credit was along the lines of "overcoming obstacles" a few years ago but nothing related to medical problems. I'm assuming just dumb with money when they were younger (they are in their early 30s now). They do seem like a nice couple (I've even parsed all their social media I could find on Google and there is literally nothing but photos of their family on it. Nothing incriminating whatsoever), but I'm nervous for all the reasons you mentioned about having to chase rent with the parents. It's certainly better than an instant denial, but I am still unsure how much cushion a co-signer really gives a landlord in the event the tenants go sour.
Even if their co-signer has great income and credit and I get a higher deposit from them, is this really a better situation than just waiting longer for a more textbook applicant to come along (the house has already been vacant for 4 weeks)?
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
7y
@Jason L.
Well, it sounds like you’re not getting much interest since it’s been vacant for 4 weeks. While I have allowed a co-signor (young person, no credit), a score of 480 range is really bad. You’d need to review their entire credit report and see what their obligations are. And then you’d need to meet in person with the parents and explain; “Co-signing means you are just as responsible for the full rent as the tenant, and I will sue you as well as them if rent is not paid”. I make it very clear what will happen if rent is not paid on time.
Where are they living now, and have you talked with their past two landlords?
Well, it sounds like you’re not getting much interest since it’s been vacant for 4 weeks. While I have allowed a co-signor (young person, no credit), a score of 480 range is really bad. You’d need to review their entire credit report and see what their obligations are. And then you’d need to meet in person with the parents and explain; “Co-signing means you are just as responsible for the full rent as the tenant, and I will sue you as well as them if rent is not paid”. I make it very clear what will happen if rent is not paid on time.
Where are they living now, and have you talked with their past two landlords?
I haven't spoken to the old landlord yet. I actually hired a third party leasing service for this house (I long distance manage but obviously can't be there for showings). I denied their application just on the credit alone. Then they went back to my leaser to plead their case. The point of this post is simply debating if it's even worth doing all of this due diligence just because their parents are willing to co-sign. If the sentiment about co-signers was that they were enough to make it worthwhile for the landlord, then I would've had the leaser do the further screening (interviewing the old landlord, talking to the parents, etc). To this point though, I remain unconvinced that the co-signer really makes leasing the house to them all that much more appealing. Open to being wrong though.
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
7y
@Jason L.
If you’re leaning toward not approving their application, I’d have to agree with you. Generally speaking I don’t like to create extra work or due diligence to have them meet my criteria.
Residential Real Estate Broker · College Station, TX · Member since 2013 · 1k+ posts · 969 votes
7y
@Jason L.. Only use a Co-Signer if you don't think you'll have any other possibilities.
If so, maybe offer to lease the Property to the Parents, and see what reaction you get. My experience (in Texas), it's difficult to get money from a Lease Co-Signer after the fact.
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
7y
@Jason L. If you decide to go the co-signer route just make sure they can cover rent and expenses for the applicant. Good credit is a must, but on top of that make sure their income is well above and beyond to cover their debts and the tenants debt. Run the co-signers application just like the tenants.
Rental Property Investor · Albany, OR · Member since 2015 · 12 posts · 8 votes
7y
The critical part of a co-signer is taking them through the application and lease process just like anyone else, as they will be liable for the rent each month if not paid. As others have suggested, best to find a potential tenant who fits your guidelines from day one, less of a headache. But if the situation demands it (low volume, little interest in the property) just be clear and communicate the situation and responsibilities of each party. 480 is incredibly low, I'd definitely get a better idea of what the issues were that caused it and more importantly, check that rental history - talk to previous landlords. At the end of the day, their past history will indicate future history.